The Reserve Bank of India (RBI) on Wednesday reduced the Merchant Discount Rate (MDR) for debit card transactions and prescribed separate cap for small and large merchants based on their annual turnover. The move is aimed to encourage merchants to accept online mode of payments.

MDR is the fee that a merchant have to pay to a bank for every transaction which is split between the bank which has issued the card, the lender whose point-of-sale terminal is being used and payment gateways like MasterCard or Visa.

The fee for merchants with turnover up to Rs 20 lakh in the last financial year, is capped at 0.4% for transactions via PoS terminals or online while if transaction is via QR code-based card acceptance infrastructure , the fee is capped at 0.3%. In both cases, Rs 200 has been set as the absolute cap.

For merchants with annual turnover of more than Rs 20 lakh, a cap of 0.9% is prescribed for physical PoS and online card transaction while 0.8% cap is mandated for QR code based transaction. The absolute cap in this case is Rs 1000.

The new caps will come into effect from January 1.

At present, MDR for debit card transactions were capped at 0.75% of the transaction amount for value upto Rs 2000 and 1% of transaction amount for value above Rs 2000. (End)